Dynamic modeling approach to forecast the term structure of government bond yields
Access full-text files
Date
2013-05
Authors
Fu, Min, active 2013
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
Since arbitrage-free is a desirable theoretical feature in a healthy financial market, many efforts have been made to construct arbitrage-free models for yield curves. However, little attention is paid to review if such restriction will improve yield forecast. We evaluate the importance of arbitrage-free restriction on dynamic Nelson-Siegel term structure when forecasting yield curves. We find that it doesn’t help. We also compare these two Nelson-Siegel dynamic models with a benchmark dynamic model and show that Nelson-Siegel structure improve forecasts for long-maturity yields.
Department
Description
text